The role of government integrity in the impact of environmental taxes on comparative advantage in environmental goods and climate change in emerging markets

Abstract

The goal of this study is to examine how environmental taxes influence the comparative advantage in environmental products and carbon emissions within emerging economies. To gain a better understanding, we examine whether this impact changes depending on the level of government integrity. This study utilizes panel autoregressive distributed lag (ARDL) techniques and a two-step generalized method of moments (GMM) dynamic panel model to ensure accuracy. The results indicate that increased environmental taxes mitigate the comparative advantage in environmental goods for emerging markets. However, for countries with high levels of government integrity, higher environmental taxes enhance their competitive edge in environmental goods. Additionally, our findings show that although a rise in environmental taxes is associated with higher carbon emissions, raising such taxes results in a reduction in carbon emissions for emerging economies with solid government integrity. These findings suggest that robust political institutions are crucial in promoting the comparative advantage of emerging markets in environmental goods and mitigating climate change. In the absence of substantial confidence in political or governmental institutions, the efficient implementation of climate taxes poses considerable challenges. Furthermore, we observe that an increase in the comparative advantage of environmental goods results in a decrease in carbon emissions.